Xinhua Far East Downgrades Dongfeng Automobile Co., Ltd. from A to A- Issuer Rating; Rating Outlook Remains Stable

Xinhua Far East Downgrades Dongfeng Automobile Co., Ltd. from A to A- Issuer Rating; Rating Outlook Remains Stable

July 11, 2006

    HONG KONG, July 11 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings today downgraded the domestic currency
issuer credit rating of Dongfeng Automobile Co., Ltd.
("Dongfeng Auto" or "the Company", SH A
600006) from A to A-.  The rating outlook remains stable.

    The downgrade mainly resulted from Xinhua Far East's
concerns over the slow recovery in Dongfeng Auto's engine
business, intensifying competition in the local light truck
sector over the short- to medium-term and the expectation of
rising capital expenses in the near future. Although the
Company's acquisition of Zhengzhou Nissan Automobile Co.,
Ltd. ("ZZNissan") provides a higher degree of
product diversification, the growth potential and
profitability within this segment are clouded by
unfavourable sales taxes.

    However, the assignment of the highest rating in
China's auto sector indicates Xinhua Far East's view that
the Company maintains a leading position in its key
business segments. Its financials are relatively strong,
and it is both maintaining closer cooperation with global
partners and enjoying solid support from Dongfeng Motor
Corporation ("DMC").

    Xinhua Far East does not foresee, however, any
significant recovery in the company's major engine segment
in the near future. Turnover in Dongfeng Auto's engine
segment totalled RMB3.79 billion and RMB2.64 billion in
2004 and 2005, down a respective 14.3% and 40.3% from 2002.
This significant downturn is measured against the impressive
sales growth of years past and comes as the result of weaker
sales of downstream medium and heavy trucks for DMC, the
combined effects of macro controls and loose enforcement
against truck overload. Although Xinhua Far East believes
these factors may improve gradually, triggering greater
demand, a recovery is unlikely in the near term.

    In the light truck segment, Xinhua Far East expects
Dongfeng Auto's growth to slow in light of the introduction
of more competitive models by major competitors and new
entrants to this niche. Growth in the whole segment will
nevertheless continue to outpace the growth in GDP.

    SUVs and pickups have become the third pillar of the
company's business following Dongfeng Auto's acquisition of
a 51% stake of ZZNissan in the third quarter of 2004.
Turnover from ZZNissan contributed RMB2,641 million and
RMB771 million to the company in 2005 and the first quarter
of 2006 respectively, accounting for approximately 30% of
total revenue. Although the acquisition heightened the
Company's product diversification and provided a cushion
for total revenues, it has driven the total debt to total
capital ratio of the company from 0% in 2004 to 20.7% in
2005. Moreover, Xinhua Far East is concerned about the
growth potential and profitability of ZZNissan under a more
unfavourable sales tax regime.

    In consideration of China's expanding auto engine
production capacity and given the ambitious investment
plans announced by leading global engine manufacturer
Cummins, the Company's co-operator, Xinhua Far East
believes that Dongfeng Auto's capital expenditure will rise
in the short- to medium-term. Xinhua Far East also
anticipates cash outflows under the coming full-listing
plan of the Company. 

    However, Xinhua Far East scores Dongfeng Auto's huge
cash reserves, its sufficient financial flexibility,
controlled capex spending record and support from DMC as
consistent with an A- ratings grade. In view of its
long-term growth potential and the high market
concentration in China's commercial vehicle sector, as well
as the company's enhanced product mix, Xinhua Far East
forecasts a stable rating outlook for Dongfeng Auto.

    The third largest light truck maker in China in 2005,
Dongfeng Auto sold 107,413 vehicles in 2005, recording
turnover of RMB8.8 billion. It is a main domestic
co-operator of Cummins Inc., currently producing Cummins B,
C, and L series engines.

    Zhengzhou Nissan Automobile Co., Ltd. is a major SUV
and pickup maker in China and a JV between Dongfeng Auto,
Nissan Automobile Business Co. and Zhengzhou Lightweight
Car. ZZNissan sold 13.4 thousand pickups in 2005, making it
the fourth largest pickup manufacturer in China. Dongfeng
Auto held a 51% stake in ZZNissan at the end of the first
quarter of 2006.

    Dongfeng Motor Corporation is China's third largest
auto group, which ultimately holds a 24.5% stake in the
Company.

    Dongfeng Auto is also a constituent of the Xinhua FTSE
China 200 Index and, as of market close on July 10, 2006,
its total market capitalization and investable
capitalization were RMB8, 020 million and RMB2, 406 million
respectively. 

    For the rating report summary, please visit
http://www.xinhuafinance.com/creditrating .

    About Xinhua FTSE China 200 Index

    Xinhua FTSE China 200 Index is the large cap index in
the Xinhua FTSE China A Share Index Series and includes the
top 200 companies in China by market cap. It is designed as
a tradable index and is calculated in real-time every 15
seconds.  For daily data and further information, see
http://www.xinhuaftse.com .

    About Xinhua Far East China Ratings

    Xinhua Far East China Ratings (Xinhua Far East) is a
pioneering venture in China that aims to rank credit risks
among corporations in China. It is a strategic alliance
between Xinhua Finance (TSE Mothers: 9399), and Shanghai
Far East Credit Rating Co., Ltd. Shanghai Far East became a
Xinhua Finance partner company in 2003 and the first China
member of The Association of Credit Rating Agencies in Asia
in December 2003.

    Capitalizing on the synergy between Xinhua Finance and
Shanghai Far East, Xinhua Far East's rating methodology and
process blend unique local market knowledge with
international rating standards. Xinhua Far East is
committed to provide investors with independent, objective,
timely and forward-looking credit opinions on Chinese
companies. It aims to help investors differentiate the
credit risks among the corporations in China, thereby,
cultivating their awareness and promoting information
disclosures and transparency in China market. 

    For more information, see
http://www.xfn.com/creditrating .

    About Xinhua Finance Limited

    Xinhua Finance Limited is China's unchallenged leader
in financial information and media, and is listed on the
Mothers board of the Tokyo Stock Exchange (symbol: 9399)
(OTC ADRs: XHFNY). Bridging China's financial markets and
the world, Xinhua Finance serves financial institutions,
corporations and re-distributors through four focused and
complementary service lines: Indices, Ratings, Financial
News and Investor Relations. Founded in November 1999, the
Company is headquartered in Shanghai with 20 news bureaus
and offices in 19 locations across Asia, Australia, North
America and Europe.  

    For more information, please visit
http://www.xinhuafinance.com . 

    About Shanghai Far East Credit Rating Co., Ltd

    Shanghai Far East Credit Rating Co., Ltd. is the first
and leading professional credit rating company with
comprehensive business coverage in China. It is an
independent agency established by the Shanghai Academy of
Social Sciences with the mission to develop internationally
accepted standards for capital market in China. The company
is a pioneer in conducting bond-rating business in China.
For years, it has been authorized by the Shanghai branch of
the PBOC to undertake loan certificate credit rating.

    Since establishment, it has rated over 1,000 corporate
long-term bonds and commercial papers, based on the
principles of objectivity, fairness and independence. The
company has also maintained over 50% market share in the
loan certificate-rating sector in Shanghai for three
consecutive years. With its strong local presence and
knowledge, it provides investors with unique and the most
insightful credit opinion. 

    For more information, see http://www.fareast-cr.com .

    For more information, please contact:

    Hong Kong
     Joy Tsang
     Corporate & Investor Communications Director
     Xinhua Finance
     Tel:   [phone]
            [phone]
            [phone]
     Email: [e-mail]

    US
     Ms. Ishviene Arora
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings